Politics & Media

Jun 06, 2016, 10:18AM

Bernie Sanders Should Explain Why He Won't Create Another Venezuela

Venezuelan President Nicolás Maduro recently called Bernie Sanders his "revolutionary friend." Sanders, now focused on winning the California primary and getting super delegates to flip over to him, obviously won't be broadcasting this endorsement. Venezuela is now a toxic waste dump that screams, "failed socialist experiment," and he wants to avoid all its fumes at the moment.

The rush is already on, on the right, to draw a straight line between Sanders' version of socialism and the long, slow slide of Venezuela into an inflationary dystopia with a spiraling murder rate and potential coup d'état. It would just be a matter of time, many Sanders critics assure us, before his policies would deliver a similar scenario to our shores.

No candidate can avoid undesirable endorsements. Donald Trump found this out the hard way with Russia's Putin, KKK white-supremacist David Duke, and North Korea's Kim Jong Un. Moreover, when speaking explicitly of socialist revolution in your campaign speeches, you're going to be called on it if another socialist revolution is simultaneously disintegrating. Sanders isn’t really responding to Venezuela-related questions, but he can't stop his opponents from gleefully making political hay with the issue. This is a losing game for him.

It's obviously necessary to step away from partisanship to get a feel for whether or not Sanders defeating Trump in November would put the U.S. on a fast track to the $200 hamburger and half-day waits for bread. Sanders has never cited countries like Venezuela and Cuba as models for the democratic form of socialism he espouses. Instead, he points to Sweden and Denmark. Being rich in natural reserves (the so-called "resource curse") is a double-edged sword when it comes to a nation enjoying long-term economic prosperity. Japan, with few resources, built itself into the world's number two economy after World War Two by erecting an industrial machine that used its citizens as its resource. If you decide to build an entire economy on a natural resource, as Venezuela did with oil, then you live or die on price fluctuations. A barrel of oil was worth $100 a barrel in 2013 and 2014, but it's half that now, as is Venezuela's income.

Hugo Chávez, who ruled Venezuela from 1999-2013, was such a megalomaniac he felt he could overcome the laws of supply and demand. He established price controls to make everyday goods more "fairly" priced. The prices were often set well below market rate, and what ensued was predictable. Firms cut back production, creating market shortages and economic chaos. The government resorted to huge subsidies (gas was only about five cents a gallon, with production costs at $2), and Venezuelans got so spoiled they'd riot when their government tried to raise its price. As firms cut back on production in the natural response to price controls, Chávez would nationalize them, running them poorly. The road to hyperinflation was paved, once again, not via government spending but rather by a seismic restructuring of an economy leading to massive supply shortages.

Looking at post-Chavez Venezuela, you won't see many parallels with the American economy, nor will you be able to make a case that Sanders' policy proposals will produce hyperinflation. The U.S. economy is a powerhouse fueled by the skills of its workers and a formidable economic infrastructure that's the product of decades of investment. Sanders doesn't want to give away free gas. He wants free college, which is an investment in the future that keeps paying off. Sanders doesn't want to take over the coffee industry—or any other industry for that matter—as Chávez did.

Sanders' best response to Venezuela questions would be an enthusiastic, "I'm glad you asked that question!" He could then move on to some bullet points dealing with exactly why Venezuela's present is not the Sanders future. Mention the price controls, nationalization of industries, the huge gas subsidies. Talk about supply and demand and assure everyone you're not like Chávez—that you won't try to fight the natural laws of economics.

Discussion

"free" college is actually mostly paid for by people who didn't have the advantages of college so others could have the benefits of college without paying for it.
It would be better--more honest, anyway--to try to sell it that way instead of "free". I mean, just to demonstrate you're not, you know, lying like a freaking rug. But the Free Stuff Coalition could probably think of some bad names to call anybody who tried it.

@Richard Aubrey
Purpose of government money taxation is to create permanent demand for the government currency. Since people can only pay their fines & taxes in government currency, else they incur the law's penalties, everyone wants to obtain wages, profits, and pensions in government currency. Government money taxation gives (extrinsic) value to the currency. Government money taxation is the root demand for government currency. All other demand for it stems from taxation. For the currency issuer, in the USA's case, the US Federal Government - federal taxes don't go anywhere except out of the economy. The Federal Government creates money in the nongovernment sector via spending & it destroys it from the nongovernment sector via taxation. The National Debt is all the net fiscal debits accrued in time in nongovernment sector pockets. It is equity for the nongovernment sector.
Government debt takes 3 forms:
-cash & coins
-reserve (checking) accounts at the central bank
-securities (saving) accounts at the central bank
Note: the nongovernment sector is composed of the domestic private sector & of the foreign sector.
(I-S)+(G-T)+(X-M)=0
(G-T)= -(I-S) -(X-M)
Legend:
(G-T)= Gov spending minus Gov taxation, i.e. the Gov sector.
(I-S)= Investment minus Spending, i.e. the domestic private sector.
(X-M)= Exports minus Imports, i.e. the foreign sector.

Interesting what your equation says. Let's remove (X-M) and say it equals zero. Trade is a wash. That leaves us with (I-S) + (G-T) = O, which can also be stated as (G-T)=(S-I). In other words, the amount of a government deficit translates, to the penny, to the net savings of the private sector - the savings that are not spent on investment. What you're saying is that what's called the national debt could also be called the national savings. Now there an interesting thought.